What Asset Allocation Now? (Bob Doll and David Darst)

BOB DOLL: If we were in a secular bull market as we discussed earlier, I think we’d have a long list, but given that we’re in this flip-flopping around, cyclical bull market, interruptions along the way, I think everything has a buy price and everything has a sell price.

DAVID DARST: Beautifully said. Consuelo, as far as a single area, I would want your investors and viewers to know about the oil services complex. You have some companies that are very domestic U.S.-oriented that have lagged. Classic case is Halliburton. Now we get all this...

CONSUELO MACK: So a driller. Right.

DAVID DARST: We get all this on-shore drilling activity these days for gas, the gas shale, and also oil shale, believe it or not. So there’s been a big upsurge in rig activity and drilling activity. You want to put that together and make a package with the two big offshore international, not just meaning offshore in the ocean, but outside the United States, and that would be Schlumberger and Baker. Schlumberger is about an $80 billion market cap company. Baker’s about a $30 billion, and Halliburton is about a $50. So you put those three together. And Schlumberger, they basically took over Smith International, and they are integrating that, squeezing out cost, and now they can go to the government of Saudi Arabia, Kazakhstan, Angola, Venezuela and say, “You’ve got that oil and gas there, but you can’t touch it without our full soup to nuts package,” which they did not have before. So they can go A to Z, and they’ve got a 40% market share.

CONSUELO MACK: Schlumberger.

DAVID DARST: Number one or number two in many of these things. So we say, don’t try to rifle shot and just pick one, but take a package of Schlumberger, Baker and Halliburton.

CONSUELO MACK: Final question to each of you, and that is, are there any outliers in the market? Is there something that basically that the consensus is missing, either a risk or an opportunity? Bob?

BOB DOLL: I think investors or the investment community is missing the attractiveness of common stocks, back to what we’ve been talking about. When you can get a yield on S&P 500 that is as high as it is compared to other alternatives you have- treasuries we’ve talked about at several points in time. Even when you look at the earnings yield, the inverse of P/Es and compare that to high-yield bonds, we’re at record levels. So I think the attractiveness of stocks relative to other common investments, cash and treasuries, is being missed by the marketplace.

CONSUELO MACK: So what’s the consensus missing, David Darst?

DAVID DARST: Consuelo, I think the President of the United States, our 44th President, is very well aware of this number of 7.4%, and I believe something’s got to...

CONSUELO MACK: Of unemployment rate.

DAVID DARST: Unemployment rate, unemployment rate, but if it’s above that, it’s very hard to get reelected. Everybody knows this, and I would be very surprised if we didn’t see some shift one way or another by people looking for re-election, not just in the White House, but in Congress, Senate and House, that they’ve got to get some policies on the table, and I believe that those will be investor-friendly, and they will be economic and U.S. economy-friendly, those policies. This is not wishing and hoping, but I believe that we’ve done the monetary. We’ve done the fiscal. Now it’s time for something structural, and I think that could be a very nice positive surprise to your viewers.

BOB DOLL: Where do we sign?

CONSUELO MACK: Excuse me?

BOB DOLL: Where do we sign?

CONSUELO MACK: Exactly what I was going to say. I sure hope they’re listening to you, David Darst, and we are all listening to you, David Darst from Morgan Stanley. And to you, Bob Doll, from BlackRock. Thanks so much for being on Wealth Track.

BOB DOLL: Thank you, Consuelo.

DAVID DARST: Thank you for having us.

CONSUELO MACK: This week we wanted to offer some summer reading suggestions from a few of our regular guests. Wintergreen Fund’s David Winters recommends The Rational Optimist by science journalist Matt Ridley. It’s a survey of human ingenuity over the centuries, and Winters says it contains “many reasons to be optimistic about the future” Loomis Sayles bond manager Dan Fuss’s choice is Capitalism 4.0 by Anatole Kaletsky. It’s about the resilience of democratic capitalism. Fuss says it will broaden the views of investors, “even though you don’t agree with his major points.
And that concludes this edition of WealthTrack. I hope you can join us next week for a potentially investment changing discussion with financial thought leader, Michael Mauboussin. The chief investment strategist of Legg Mason Capital Management will explain why doing less in the markets can actually make you more! Thank you for taking the time to visit with us. Make the week ahead a profitable and a productive one.

Copyright © WealthTrack